The opinion of the court was delivered by: PARKER
Before the Court is the motion of Counterclaim Defendant Continental Insurance Company ("Continental") to stay proceedings on the ground that there is an enforceable arbitration agreement with Defendant/Counterclaim Plaintiff Service Merchandise Corporation Inc. ("SMC").
This action arises out of a contract dispute between Plaintiff, VAC Service Corporation ("VAC") and SMC. VAC is a New York corporation in the business of marketing extended replacement Service Agreements to retail consumers of home electronic and appliance products. SMC sells consumer products, including electronic goods and jewelry, through catalogs and though a national chain of retail outlets throughout the United States.
According to the Amended Complaint, some time in 1988, VAC and SMC agreed that VAC would replace certain SMC merchandise, including watches, in exchange for a fee. The terms of the agreement were memorialized in Dealer Agreements, covering May 19, 1991 through July 31, 1995. The Dealer Agreements included a clause, requiring VAC to maintain insurance, ostensibly to protect against VAC's failure to perform its obligations. From 1993 - 1995, VAC contracted with Continental to provide this insurance. On July 31, 1995, SMC terminated VAC as its administrator.
In its complaint, VAC charges that SMC violated contractual obligations by practices such as encouraging its sales associates to instruct SMC customers as to how to defraud VAC. In its answer, SMC denied in substance VAC's allegations and claimed to have fully performed its contractual obligations. Additionally, SMC counterclaimed against VAC, alleging that as of January 15, 1996, VAC owed SMC $ 1,302,486.80 for replacement merchandise for SMC customers. In that counterclaim, SMC also sought recovery from VAC's insurance carriers, including Continental, claiming that its policy indemnified SMC against losses caused by VAC's breach. Presently before the Court is Continental's motion to stay this proceeding pending arbitration of SMC's claims against Continental.
The Continental Policy provides:
Any controversy arising out of or relating to this insurance, or breach thereof, shall be submitted to arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association. The decision rendered by the Arbitrator(s) will be binding. Each party will pay the expenses of [its] arbitrator and bear the expenses of the American Arbitration Association.
As a threshold matter, the Federal Arbitration Act ("the Act") provides that arbitration clauses in contracts involving interstate commerce are enforceable absent appropriate legal or equitable grounds for nonenforcement. 9 U.S.C. § 2. "The effect of [this] section is to create a body of federal substantive law of arbitrability, applicable to any arbitration agreement within the coverage of the Act." Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 24, 74 L. Ed. 2d 765, 103 S. Ct. 927 (1983).
The Act further requires the courts to stay proceedings if the issues presented are covered by an arbitration agreement and to compel arbitration in the event of a refusal to comply with a valid agreement to arbitrate. 9 U.S.C. §§ 3, 4. A rather extensive body of caselaw emphasizes that these provisions underpin an important, liberal federal policy favoring arbitration. Bernhardt v. Polygraphic Co. of America, 350 U.S. 198, 100 L. Ed. 199, 76 S. Ct. 273 (1956); Collins & Aikman Products Co v. Building Systems, 58 F.3d 16, 19 (2d Cir. 1995); Cotton v. Slone, 4 F.3d 176, 180 (2d Cir. 1993). The Act greatly circumscribes judicial discretion, and with some considerable consistency, the cases mandate that the courts direct parties to arbitration over issues arguably covered by arbitration agreements. Dean Witter Reynolds Inc. v. Byrd, 470 U.S. 213, 218, 84 L. Ed. 2d 158, 105 S. Ct. 1238 (1985); Collins, 58 F.3d at 19; Cotton, 4 F.3d at 180.
The initial inquiry is "whether the parties agreed to arbitrate, and if so, whether the scope of that agreement encompasses the asserted claims." Progressive Cas. Ins. Co. v. C.A. Reaseguradora Nacional De Venezuela, 991 F.2d 42, 45 (2d Cir. 1993). Of some significance to this motion is the principle that any doubts concerning the scope of arbitrable issues "should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language or an allegation of waiver, delay or a like defense of arbitrability." Shearson Lehman Hutton Inc. v. Wagoner, 944 F.2d 114 (2d Cir. 1991) (presumption of arbitrability is so strong that arbitration will be ordered even if claim appears frivolous) (citing AT&T Technologies, Inc. v. Communications Workers of America, 475 U.S. 643, 649-50, 89 L. Ed. 2d 648, 106 S. Ct. 1415 (1986); Government of United Kingdom v. Boeing Co., 998 F.2d 68, 72 (2d Cir. 1993) (arbitration agreements enforced even if such enforcement creates inefficiencies or piecemeal litigation).
As a preliminary matter, where a contract contains an arbitration clause, there is a presumption of arbitrability that is overcome only by a definitive showing that the dispute in question is outside the arbitration clause. Associated Brick Mason Contractors of Greater New York Inc. v. Harrington, 820 F.2d 31, 35 (2d Cir. 1987); see also Concourse Village Inc. v. Local 32E Service Employees Int'l Union, 822 F.2d 302, 304 (2d Cir. 1987) (unless it can be said 'with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute,' the dispute should be submitted to arbitration") (quoting United Steelworkers of America v. Warrior & Gulf Navigation Co, 363 U.S. 574, 582-83, 4 L. Ed. 2d 1409, 80 S. Ct. 1347 (1960)).
The arbitration provision in the Continental policy is broad. It specifies that "any controversy arising out of or relating to" the Continental Policy "shall be submitted to arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association." See PaineWebber Inc. v. Bybyk, 81 F.3d 1193, 1996 WL 191024 *6 (2nd Cir. 1996) ("the meaning of these words is plain indeed: any and all controversies are to be determined by arbitration. The wording is inclusive, categorical, unconditional and unlimited. The words "any and all" are elastic enough to encompass disputes over whether a claim is timely and whether a claim is timely and whether a claim is timely and whether a claim is within the scope of arbitration"); see also Shearson, 944 F.2d at 121 ("when the contract contains a ...